Gateway Distriparks - Norwest Venture Partners to Invest Rs. 600mn in Snowman Logistics Limited - GEPL Capital

On 14th June, 2013, Gateway Distriparks Limited (GDL) announced that Norwest Venture Partners (NVP), a US-based Venture Capital firm was planning to invest Rs. 600 mn in GDL's cold chain subsidiary, Snowman Logistics Limited (SLL). NVP would be subscribing to shares of SLL through its arm Norwest Venture Partners VII-A-Mauritius.

Deal Dynamics

1. GDL will acquire 5% of International Finance Corp's (IFC) 19.9% stake in SLL for Rs. 180 mn.
2. NVP will subscribe to 17 mn shares of SLL at Rs. 35 per share for a 14.3% stake. This will be fresh issue of shares. NVP will pay a total consideration of Rs. 600 mn for the same.
3. SLL currently has a debt-equity ratio of 1:1 (prior to deal). This translates to a debt of Rs. 1,180 mn which includes term loans of Rs. 1,100 mn and Working Capital loans of Rs. 80 mn. However, given that SLL is a capacity expansion phase, it is unlikely to use proceeds from the deal to retire debt. Also a debt equity ratio of 1:1 is workable given GDL's cash of Rs.927 mn on books.
4. The cash flow from this deal would be used to fund SLL's pallet capacity expansion plans. Current capacity is 46,000 pallets expected to go up to 70,000 pallets by FY14 end and 80,000 pallets by FY15 end.

Valuation & Viewpoint

The deal with NVP is certainly a positive development for GDL (SLL) and would aid its capacity expansion plans. However, SLL's robust growth and its capacity expansion plans are already discounted into the stock price and hence the announcement would not impact price or valuations by much. We continue to believe in GDL's long term growth story and feel that a pick-up in the economy and trade activities at the macro-economic level would provide a boost to the stock. Hence, we retain our price target of Rs. 143 on the stock with an ACCUMULATE rating.

Source : Equity Bulls

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